Umbogintwini Land and Investment Company (Pty) Ltd. v Barclays National Bank Ltd and Another (205/86) [1987] ZASCA 86 (17 September 1987)

205/86 /mb

IN THE SUPREME COURT OF SOUTH AFRICA

(APPELLATE DIVISION)

In the matter between:

UMBOGINTWINI LAND AND INVESTMENT

COMPANY (PROPRIETARY) LIMITED . APPELLANT

(In liquidation) vs

BARCLAYS NATIONAL BANK LIMITED FIRST RESPONDENT

and

THE MASTER OF THE SUPREME COURT (NPD) .... SECOND RESPONDENT

CORAM : VILJOEN, BOTHA, GROSSKOPF, VIVIER, JJA et

STEYN AJA HEARD : 12 MAY 1987

DELIVERED : 17 SEPTEMBER 1987

JUDGMENT

VILJOEN, JA

The appellant is a company in liquidation.

In/

2. In relating the relevant history before the liquidation,

I shall simply refer to it as Umbogintwini. On 22 De-cember 1975 and in writing Umbogintwini bound itselfas surety for and co-principal debtor with a company,Sandy's Supermarket (Pty) Ltd (hereinafter referred toas Sandy's), which is also now in liquidation, for thedue repayment on demand of all sums of money which werethen or might from time to time thereafter be owing bySandy's to the first respondent (hereinafter referredto as the plaintiff). On 27 January 1976 Umbogintwinicaused a first mortgage bond hypothecating a certainpiece of land described as Lot 313 Athlone Park, Aman-

zimtoti, (hereinafter referred to as "the property"),

to be/

3. to be registered in favour of the plaintiff. This

bond secured the due payment by Umbogintwini to theplaintiff of Sandy's indebtedness at any time up toan amount of R170 000 and an additional sum of R9 000

for certain contingent payments, costs and outlays.On 18 April 1979 Sandy's account with the plaintiffwas overdrawn to the extent of an amount exceedingR234 000,00. Sandy's could not pay this amount andthe plaintiff consequently sued the appellant

(Umbogintwini which was at that stage in liquidation)for (a) payment of the sum of R234 400,34; (b) in-terest thereon at the rate of 13,5% p a from 19 April

1979 to date of payment; (c) an order declaring thatthe plaintiff's claim for'which judgment is granted is

secured/ 4. secured to the extent of R170 000 by virtue of the

mortgage bond referred to and that, in the windingup of Umbogintwini, the plaintiff is entitled topreference attaching to such security and (d) costs.The Master of the Supreme Court, Natal, (hereinafterreferred to as the Master) wás cited, by reason ofany interest which he might have in the outcome of theproceedings, as second defendant, and in the presentproceedings he is cited as the second respondent. TheMaster has, however, notified the Registrar of thisCourt that he is not opposing the appeal and that he

abides by the decision of this Court.

To the plaintiff's claims the appellant

raised a number of defences, including a special plea,

and/ 5. and instituted a counterclaim that the suretyship and

the bond be set aside as being dispositions withoutvalue as envisaged by section 26 of the Insolvency Act,

24 of 1936, read with section 339 of the Companies Act,61 of 1973. The learned Judge a quo rejected the defencesand granted judgment in the plaintiff's favour. Hedismissed the counterclaim. As the defences, predominant-ly of a legal nature, were, subject to a slight diffe-rence of approach, reargued in this Court, they willbe referred to and considered in due course and nodetailed reference to them is made at this stage. Withthe leave of the Court a quo the appellant appealsagainst the whole of the judgment and order of the

learned Judge.

The special plea was disposed of first and initially on

such/

6. such facts as were relevant for purposes of adjudi-

cating upon the special plea were put before the court

a quo. However, inasmuch as the facts relating to the

special plea are part and parcel of the entire historyof Umbogintwini which culminated in the institutionby the plaintiff of the claim against the appellant,

I deem it convenient to relate the salient facts (tobe supplemented where necessary at a later stage) in

substantially chronological order.

Umbogintwini was floated on 10 June 1968.

At all material times the directors were C Assimakopoulosand his wife A Assimakopoulos. They were also the only

sháreholders, C Assimakopoulos holding 99 shares andA Assimakopoulos one share.

It is/

7. It is not clear from the irecord when Sandy's was

incorporated but it may fairly be assumed that it had

existed for a number of years before it was finally

wound up in 1979. It was a trading concern which con-

ducted three supermarket businesses, at Pinetown, at

Pietermaritzburg and at Mayville, Natal. At some stage

during 1976 the directors of Sandy's consolidated the

company's position by selling the Pinetown store and ter-

minating the lease of the Mayville premises when it

abandoned that operation. The company then concentrated

on the Pietermaritzburg business. As appears from the

directors' report prefixed to the accounts for the year

ending 29 February 1976 they felt confident that the

consolidation policy would result in an improvement of

Sandy's/ 8. Sandy's future profitability. The shareholders of

Sandy's were C Assimakopoulos to the extent of seventy-five per cent and K Coussis to the extent of twenty-five per cent. These two gentlemen were the onlydirectors.

During 1975 Sandy's was conducting two ban-king accounts, one with Western Bank and one with Ned-bank. When Barclays Bank took over Western Bank the latterbecame Barclays Western Bank. As at 28 February 1975Sandy's was indebted to Nedbank in the sum of R73 013and to Western Bank in the sum of R64 000. In respectof the current account conducted with Nedbank there was,originally, an authorised overdraft limit of R35 000,which was subsequently increased. On 28 February 1975the account was overdrawn to the extent of R73 013.

This/ 9. This current account was secured by unlimited surety-

ship undertakings by the directors of Sandy's and byUmbogintwini. By July 1975 Nedbank required Sandy'saccount to be closed by reason of Sandy's "kite flying"activities. Sandy's had deposited cheques drawn onBarclays Western Bank to the credit of its account inthe books of Nedbank and by virtue of this manipulationmanaged to contrive credit for itself of up to four orfive days before the cheques were cleared by BarclaysWestern Bank. Nedbank indicated to Sandy's that it wasdissatisfied with the manner in which the account was

being conducted and requested Sandy's to make other

banking arrangements. As a consequence the directors

of Sandy's transferred its Nedbank account to the

plaintiff/ 10. plaintiff. In September 1975 the plaintiff accepted

transfer of the facility which Sandy's had enjoyedwith Nedbank from the latter to itself and subject

to adequate security being provided undertook to in-crease the facility. The security which was furnishedwas that which formed the subject matter of the claimin the court a quo. The facility was increased fromtime to time. In the meantime the plaintiff had alsotaken over Umbogintwini's account from Nedbank. Sandy'sfinancial position deteriorated steadily. Its liabi-

lities increased; it could not pay its debts and waseventually wound up by the court.

Umbogintwini was also placed in liquidation.

It was/

11.It was finally wound up by the court on 13 August 1979.The same liquidator as had been appointed in Sandy's estate was appointed, on 1 October 1979, for the appellant. At a duly constituted meeting of credi-tors the plaintiff's claim was proved and admitted. The liqui-dator, however, disputed the claim after it had been proved and the Master disallowed the claim in terms of s 45(3) of the Insolvency Act. Such disallowance was communicated to the plaintiff in writing on 30 May 1983. On 5 August 1983 the summons initiating the action in the present matter was issued.The defences which were raised by the appellant to the plaintiff's claims were summarised in the headsof argument prepared for the purposes of this appeal

by counsel who appeared for the appellant in the Court

a quo as follows:

"1. The/

12.

"1. The Appellant raised a special plea wherein the Appellant alleged that by virtue of the Respondent's failure to comply with the provisions of Section 359 of the Companies Act No 61 of 1973 ("the Companies Act") prior to instituting the present pro-ceedings against the Appellant, the Respondent's claim was deemed to have been abandoned by virtue of the pro-visions of Section 359 of the Com-panies Act.

2. A number of alternative defences

based essentially upon the Appellant's contention that the signing of the suretyship and the granting of a power of attorney to pass the mort-gage bond was not accompanied by any attendant value received by the Appellant. These alternative defences, in their turn, can be categorised under two m'ain groupings as follows: 2.1 The transaction was hit by

Section 26 of the Insolvency Act No 24 of 1936 in the form in which it existed prior to

its/

13.

its being amended by the enactment of Act No 84 of 1984 and that accordingly the claim which the Appellant alleged was uncompleted could not give rise to any claim in competition with the creditors of the Appellant's estate.

2.2 That by virtue of the ab-sence of attendant value, the Appellant and/or its directors lacked the autho-rity to bind the Appellant to the suretyship and the mortgage bond."

The defence under paragraph 2.2 may con-veniently be referred to as the ultra vires defence.The learned trial Judge dismissed the special plea. He further held that the appellant had failed

to/ 14. to establish that the dispositions were withoutvalue. He found that that conclusion made itunnecessary for him to consider whether the 1984amendment to s 26(2) of the Insolvency Act had anyoperation in the context of the case. Despite thisview he nevertheless dealt with that issue brieflyand came to the conclusion that section 26(2) onlycomes into operation when there is competition,in other words at the stage at which distributionis made. Until the competition arises it has noapplication; it follows, he held, that there isno guestion of retrospectivity in the true sense.The effect of this is that the amendment does apply,

he/

15. he concluded.

Before this Court on appeal the appellant

has been represented by Mr Heher who did not appear atthe trial. Subject to two qualifications, his sub-missions are, substantially, those set out in his pre-decessor's heads of argument. The first qualificationis that, instead of "Respondent's claim" in paragraph

1 of the summary of the appellant's defences in theheads he requests us to read "proceedings". The secondis that, wisely, in my view, he has jettisoned theultra vires defence.

As appears from paragraph 1 of the summary

of the defences, the appellant relies on section 359of the Companies Act. In terms of subsection (l)(a) all

civil/

16.

civil proceedings by or against the company concerned

shall, when the court has made an order for the winding-

up of a company, be suspended until the appointment of

a liquidator. Subsection (2) reads as follows:

"(a) Every person who, having instituted legal proceedings against a company which were suspended by a winding-up, intends to con-tinue the same, and every person who intends to institute legal proceedings for the purpose of enforcing any claim against the company which arose before the commen-cement of the winding-up, shall within four weeks after the appointment of the liquidator give the liquidator not less than three weeks' notice in writing before continuing or commencing the proceedings.

(b) If notice is not so given the proceedings shall be considered to be abandoned un-less the Court otherwise directs."

In the present case the plaintiff did not

institute proceedings before the winding up of the

company/ 17. company. The first portion of ss 2(a) is,therefore,

not applicable. The words to be considered in thepresent context are "every person who intends to in-stitute legal proceedings for the purpose of enforcingany claim against the company which arose before thecommencement of the winding-up." It is common cause.that no notice was given to the liquidator within fourweeks after his appointment, or at all, that the plain-tiff intended to institute legal proceedings for thepurpose of enforcing its claim against the appellant.It is also common cause that the plaintiff, before in-stituting action, did not approach the court for leaveto proceed as a creditor would, in an appropriate case,be required to do as indicated by the words "unless the

court/ 18. Court otherwise directs" in s 359(2)(b).

In dealing with the issue raised by the

special plea, the learned Judge a quo referred to

s 366(1)(a) of the Companies Act which provides that

in the winding up, inter alia, of a company by the

court the claims against the company shall be proved

at a meeting of creditors mutatis mutandis in accor-

dance with the provisions relating to the proof of claims

against an insolvent estate under the law relating to in-

solvency. That brought into effect, said the learned Judge

a quo, sections 44 and 45 of the Insolvency Act. He quoted

sections 44(3) and 45(3) which he regarded as the relevant

subsections. In both, the learned Judge said, counsel sought

construe the reference to section 75 of the Insolvency Act as a

reference/

19. reference to section 359(2) of the Companies Act

by invoking the mutatis mutandis provisions in section

366(1)(a). A consideration of sections 44(3) and inparticular 45(3) indicates,remarked the learned Judge,that those sections contemplate that after a disputeof a claim by the trustee, a report to the Master anda reduction or disallowance of the claim, there could be aresort on the part of the claimant to establishing hisclaim by an action at law. This resort, he said, wasqualified only by the provisions of section 75 of theInsolvency Act. Without dealing specifically withsection 75 the learned Judge dismissed the special plea,concluding as follows:

"Section 359(2) of the Companies Act limits

the/

20.

the enforcement of a claim to the first four weeks after the appointment of a liquidator. That cannot possibly re-late to a claim made or sought. to be established subseguent to, as happened in the present case, a dispute by the trustee and a disallowance by the Mas-ter. The terms of section 359 of the Companies Act are wholly inappropriate to the situation which then obtains."

In the appellant's heads the argument ad-vanced in the court a quo is substantially repeated.

In my view s 44(3) of the Insolvency Act cannot berelevant because the proviso postulates a rejection ofthe claim by the officer presiding at the meeting ofcreditors, which did not happen in the present case.The relevant section is s 45(3) which provides:

"If the trustee disputes a claim after it has been proved against the estate at a meeting of creditors, he shall report the

fact/

2 1.

fact in writing to the Master and shall state in his report his reasons for dis-puting the claim. Thereupon the Master may confirm the claim, or he may, after having afforded the claimant an opportunity to substantiate his claim, reduce or disallow the claim, and if he has done so, he shall forthwith notify the claimant in writing: Provided that such reduction or disallowan-ce shall not debar the claimant from estab-lishing his claim by an action at law, but subject to the provisions of section seven-ty-five."

Section 75 of the Insolvency Act reads :

"(1) Any civil legal proceedings insti-tuted against a debtor before the sequestration of his estate shall lapse upon the expiration of a period of three weeks as from the date of the first meeting of the creditors of that estate, unless the person who instituted those pro-ceedings gave notice, within that period to the trustee of that es-tate, or if no trustee has been appointed, to the Master, that he

intends/

2 2.

intends to continue those pro-ceedings, and after the expiration of a period of three weeks as from the date of such notice, prosecutes those proceedings with reasonable expedition: Provided that the court in which the proceedings are pending may permit the said person (on such conditions as it may think fit to impose) to continue those proceedings even though he failed to give such notice within the said period, if it finds that there was a reasonable excuse for such failure.

(2) After the confirmation, by the

Master, of any trustee's account in an insolvent estate in terms of section one hundred and twelve, no person shall institute any legal proceedings against that estate in respect of any liability which arose before its sequestration: Provided that the court in which it is sought to institute pro-ceedings may, on such conditions as it may think fit to impose, but

subject/

23. subject to the provisions of the said section, permit the institu-tion of such proceedings after the said confirmation, if it finds that there was a reasonable excuse for the delay in instituting such proceedings."

Subsection (1) of s 75 cannot possibly, even

in the insolvency context, apply to a situation suchas is contemplated by s 45(3) because the latter pro-vision deals with a reduction or disallowance by theMaster of a claim proved in the insolvent estate, whereas

section 75(1) applies to civil proceedings which havebeen instituted against a debtor before the sequestra-tion of his estate. It is therefore surprising that the

application of the proviso to s 45(3) is not restricted

to s 75(2). This latter provision, even though not

relied/ 24. relied upon in the present case, presumably because

the Master has not confirmed the liquidation accountbefore the institution of the action, may neverthelessbe applicable to a company in liguidation, because s 359of the Companies Act does not provide for such an even-tuality. If that is so this would create a furtherbar to, but at the same time another possibility for,the institution of legal proceedings even after confir-mation by the Master of the liquidator's account andwould be inconsistent with the argument contained inthe appellant's heads of argument that the words "sub-

ject to the provision of section seventy five" in theproviso to s 45(3) of the Insolvency Act should be

interpreted to mean "subject to s 359(2)(b) of the

Companies Act."

This/......25. This argument, in any event, begs the question because the enguiry remains: does section 359(2) render it obligatory for every person, inclu-ding the person who has every intention to prove his claim in the insolvent estate, to give notice in terms of s 359(2) of the Companies Act? That it does is the contention advanced both in the appellant's heads of argument as well as by Mr Heher in his oral argument. The approach differed, however. Counsel who prepared the heads of argument acknowledged that s 359(2) of the Companies Act impliedly contemplates that there may, in an appropriate case, be two courses open for a creditor to enforce his claim against the estate viz by institutir proceedings or by proving a claim in the estate, and that the subsection should be read together with s 366(1] of the Companies Act and the relevant provisions of the Insolvency Act. Mr Heher, on the other hand, emphasised

26. the word "proceedings" in the subsection and argued

that s 359 is self-contained in that it is the only

section in the Companies Act which deals with "pro-

ceedings." Whatever the circumstances under which orthe time when civil proceedings to enforce a claim areinstituted, counsel submitted, the subsection is theonly applicable provision.

In the matter of Swaanswyk Investments (Pty)

Ltd v The Master and Another 1978(2) SA 267(C) Van Zijl JP, after having referred to sections 339 and 366(1) of the Companies Act and to sections 44(3) and 45(3) of the Insolvency Act, said.at 269 in fine - 270A:

"From these sections of the Companies and Insolvency Acts it appears that a creditor has, in respect of the recovery of a debt owing to him by a company which has been placed under a winding-up order, two courses open to him. He can give the reguired notice in terms of s 359 of the

Companies Act/

27.

Companies Act and sue in the courts for the recovery of his debt, or he can take advantage of the liquidation order and try to prove his debt at a meeting of creditors and, if he fails to prove it, he can then sue in the courts for the recovery thereof. In other words, if he fails to prove his claim at a meeting of creditors, he can attempt to do so in the courts."

Counsel for the appellant criticised this judgment.

In the heads of argument the submission is made thatVan Zijl JP,in stopping short of considering the words

"but subject to the provisions of section seventy-five"in the proviso to s 45(3) of the Insolvency Act, failedto appreciate the import of these words. As I havepointed out above, this argument begs the question.Mr Heher, on the other hand, was constrained to arguethat the judgment was wrong because s 45(3) of the

Insolvency Act/